Liquidity traps, capital flows

Suchant Acharya and Julien Bengui

Cahiers de recherche from Universite de Montreal, Departement de sciences economiques

Abstract: Motivated by debates surrounding international capital flows during the Great Recession, we conduct a positive and normative analysis of capital flows when a region of the global economy experiences a liquidity trap. Capital flows reduce inefficient output fluctuations in this region by inducing exchange rate movements that reallocate expenditure towards the goods it produces. Restricting capital mobility hampers such an adjustment. From a global perspective, constrained efficiency entails subsidizing capital flows to address an aggregate demand externality associated with exchange rate movements. Absent cooperation, however, dynamic terms-of-trade manipulation motives drive countries to inefficiently restrict capital flows, impeding aggregate demand stabilization.

Keywords: Capital flows; International spillovers; Liquidity traps; Uncovered interest parity; Capital flow management; Policy coordination; Optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E52 F32 F38 F42 F44 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2015
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://hdl.handle.net/1866/12959 (application/pdf)

Related works:
Journal Article: Liquidity traps, capital flows (2018)
Working Paper: Liquidity traps, capital flows (2016)
Working Paper: Liquidity Traps, Capital Flows (2016)
Working Paper: Liquidity Traps, Capital Flows (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mtl:montde:2015-09

Access Statistics for this paper

More papers in Cahiers de recherche from Universite de Montreal, Departement de sciences economiques Contact information at EDIRC.
Bibliographic data for series maintained by Sharon BREWER ().